As the fires of this past week are brought increasingly to heel, and as residents and business owners return to assess what the fire has left behind, two articles from Wednesday's Los Angeles Times provide a reminder of the ambivalence so many feel toward their insurers. "Sure," they seem to say, "insurance companies are there then you need them -- but you've gotta watch 'em like a hawk."
In Section A, as part of the paper's comprehensive fire coverage, we find the headline "Insurers roll even before smoke clears." The story begins well for insurers: they are on the move, allocating resources with abundance and speed to begin to get their insureds back on their feet. State Farm and Farmers have moved "mobile claims command centers" in to the field, the better to be close and responsive. Upper-crust insureds get upper-crust claims handling:
A third insurer, American International Group Inc., was even more proactive. Its Private Client Group subsidiary dispatched six special trucks to spray retardant on the vegetation and wood portions of policyholders' multimillion-dollar homes threatened by fast-moving fires.
'We think it provides enhanced protection from extensive damage,' said Stan Rivera, the company's director of wildfire protection.
By article's end, however, the focus has shifted from praise of insurers' response to the grim spectre of future rate increases or policy cancellations. Allstate comes in for particular opprobrium:
The latest fires are just the sort of catastrophe that prompted third-ranked Allstate Corp. in May to stop writing new policies for homeowners.
The insurer also is seeking a major rate increase for current policyholders, citing danger from fires.
That could spell trouble for California homeowners "if other insurance companies choose to look at it like that," warned Douglas Heller of the Foundation for Taxpayer and Consumer Rights in Santa Monica.
State Farm and Farmers said emphatically this week that they had no plans to follow Allstate's lead.
'Southern California is Farmers' home and its territory,' CEO Hopkins said. Los Angeles-based Farmers is a unit of Switzerland's Zurich Financial Services. 'I hope other carriers don't look at this as a time to try to take on horrendous rate increases or try to leave the state.'
Insurers are hastening to reassure the public that cancellation, at least, is not a probable result of a loss in these most recent fires, as Insurance Journal reports:
Insurance industry associations are hoping to quell concerns stirred up they said by the media and politicians that indicated policies would be canceled.
According to the Association of California Insurance Companies, Personal Insurance Federation of California and American Insurance Association emphasized that a law is in place to address the issues of cancellation and nonrenewal. Besides that, there is no history of widespread non-renewals, as evidenced by data produced by the Insurance Information Network of California, the associations said. In fact, [Cal. Insurance Code §675.1] prohibits an insurer from cancel a policy because of a claim prior to reconstruction, and requires the insurer to offer to renew the policy immediately following a disaster.
Meanwhile, back in the LA Times, the front page of the Wednesday Business section featured a "Consumer Confidential" column by David Lazarus under the title, appropriate to late October, "Insurance claims could haunt houses." The subject: those wicked insurers are actually gathering information about risk and (horrors!) using it in making underwriting decisions:
If past history is any measure, many homeowners affected by the wildfires burning throughout Southern California will find that claims they submit to insurers will result in higher rates or even dropped policies.
What they, and you, may not know is that virtually all such claims also will end up in vast, privately run databases that are routinely accessed by the insurance industry to determine what rates they'll charge -- or if they'll cover you at all.
In other words, a claim filed with one insurer can be used by another insurer to jack up premiums, even though your record with that other insurer may be spotless.
Pause to consider the topsy-turvy notion of causation underlying that last sentence. In Lazarus' world, it seems Insurer B is expected to have selective amnesia and to overlook the risk factors surrounding a property so long as prior losses came to rest on Insurer A -- even though the likelihood of loss is exactly the same no matter which particular insurer is covering the property. If the only change is that State Fire Casualty covered my house last week and Shifting Sands Mutual covers me today, Shifting Sands has every reason to want to know what happened on State Fire's watch.
Lazarus may not be thinking clearly, but he goes to the head of the class in comparison to Amy Bach, executive director of the "San Francisco-based advocacy group" United Policyholders:
Although the databases may help insurers make educated decisions about risks posed by potential customers, they also can be abused by insurance firms seeking any rationale for charging higher rates, Bach said.
'Why should supposedly competing companies get to access your history?' she asked. 'Insurance requires a certain amount of risk on the part of insurance companies. That's just the way it is.'
At the risk of restating the resoundingly obvious, Ms. Bach:
(1) Any insurance company that wants to charge higher rates for their own sake will do so. If the rate charged is calculated based on the risk actually being undertaken, then it is an "educated decision" and should be respected as such. (And someone at the LAT needs to open up a dictionary and rediscover the distinction between a rationale and a rationalization.)
(2) It isn't exactly fair competition among insurers if the competing companies don't have access to equally accurate information. [Insurer: "So, has this house ever burned before?" Applicant: "That would be telling."]
(3) Yes, insurance "requires a certain amount of risk" -- but the insurer is certainly entitled to know what that "certain amount" is, given that the insurer is kindly (in exchange for payment of the stated premium) taking that risk off the shoulders of the policyholder.
Fair is fair: While insurers are fully within their rights to gather as comprehensive a database of relevant information as they are able, insurance buyers are entitled to be informed that that sort of data gathering is going on. The Lazarus column provides a valuable service to that extent, by alerting insurance consumers that they are entitled to free access to their loss history files once a year and by including links for that purpose to the two major database providers -- CLUE and A-PLUS. The column would have provided a more valuable service, however, had it not wrapped itself in all that conspiracy-theorizing.
As they say: "That's just the way it is."
FOR FURTHER LISTENING: A somewhat more sophisticated discussion of these issues can be had by tuning in to the RiskProf himself, Martin Grace, earlier this week on NPR's Marketplace:
FOR FURTHER READING:
- At Overlawyered, Walter Olson points to burgeoning discussions of the forestry management issues raised by large Western wildfires.
- Writing on Cato-at-liberty, Randal O'Toole looks at the imbalance between pre-fire risk reduction measures and price-is-no-object suppression efforts after fires have started:
In fact, President Bush’s signing of the Healthy Forests Act in 2003 seemed to signal a huge increase in fires. In the decades prior to 2003, an average of about 4 million acres burned each year and only one year had topped 8 million. Since then, the number of acres burned has never been less than 8 million.
The real problem is too much money: Congress has given the Forest Service a virtual blank check for fire suppression. The agency — perhaps subconsciously realizing that it needs a sustained number of homes burned each year to keep Congress’ interest in giving it money — has not adopted policies aimed at cost-effectively protecting homes. Instead, it merely promises that it will save homes through fire suppression — a promise that it cannot keep.
An extended version of that post -- with charts and illustrations! -- is available at The Antiplanner weblog, as is a report on the apparent success of firewise "shelter in place" communities in northern San Diego County. Unreasonable expectations were a topic alluded to in my earlier fire post.